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CONFORMED COPY
CREDIT NUMBER 3664-TJ
Project Agreement
(Dushanbe Water Supply Project)
among
INTERNATIONAL DEVELOPMENT ASSOCIATION
and
DUSHANBE VODOKANAL STATE UNITARY ENTERPRISE
and
MUNICIPALITY OF DUSHANBE
Dated July 3, 2002
CREDIT NUMBER 3664-TJ
PROJECT AGREEMENT
AGREEMENT, dated July 3, 2002, among INTERNATIONAL DEVELOPMENT 
ASSOCIATION (the Association) and DUSHANBE VODOKANAL STATE UNITARY 
ENTERPRISE (DVK) and the MUNICIPALITY OF DUSHANBE.
WHEREAS (A)
by the Development Credit Agreement of even date herewith between 
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Republic of Tajikistan (the Borrower) and the Association, the Association has agreed to make 
available to the Borrower an amount in various currencies equivalent to thirteen million five 
hundred thousand Special Drawing Rights (SDR 13,500,000), on the terms and conditions set 
forth in the Development Credit Agreement, but only on conditions that DVK and Municipality 
of Dushanbe agree to undertake such obligations toward the Association as are set forth in this 
Agreement;
(B)
by a subsidiary loan agreement to be entered into between the Borrower and 
DVK, the proceeds of the credit provided for under the Development Credit Agreement will be 
made available to DVK on the terms and conditions set forth in said Subsidiary Loan Agreement; 
and
WHEREAS DVK and the Municipality of Dushanbe, in consideration of the 
Association’s entering into the Development Credit Agreement with the Borrower, have agreed 
to undertake the obligations set forth in this Agreement;
NOW THEREFORE the parties hereto hereby agree as follows:
ARTICLE I
Definitions
Section 1.01. Unless the context otherwise requires, the several terms defined in the 
Development Credit Agreement, the Preamble to this Agreement and in the General Conditions 
(as so defined) have the respective meanings therein set forth.
ARTICLE II
Execution of the Project
Section 2.01. (a) DVK and the Municipality of Dushanbe declare their commitment to 
the objective of the Project as set forth in Schedule 2 to the Development Credit Agreement, and, 
to this end, DVK shall carry out the Project with due diligence and efficiency and in conformity 
with appropriate administrative, financial, engineering and environmental practices, and DVK 
and the Municipality of Dushanbe shall provide, or cause to be provided, promptly as needed, the 
funds, facilities, services and other resources required for the Project.
(b)
Without limitation upon the provisions of paragraph (a) of this Section and 
except as the Association, DVK and the Municipality of Dushanbe shall otherwise agree, DVK 
shall carry out the Project in accordance with the Operational Manual, PIP and the 
Implementation Program set forth in Schedule 2 to this Agreement.
Section 2.02. Except as the Association shall otherwise agree, procurement of the goods 
and consultants’ services required for the Project and to be financed out of the proceeds of the 
Credit shall be governed by the provisions of Schedule 1 to this Agreement.
Section 2.03. (a) DVK shall carry out the obligations set forth in Sections 9.03, 9.04, 
9.05, 9.06, 9.07 and 9.08 of the General Conditions (relating to insurance, use of goods and 
services, plans and schedules, records and reports, maintenance and land acquisition, 
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respectively) in respect of the Project Agreement.
(b)
For the purposes of Section 9.06 of the General Conditions and without 
limitation thereto, DVK shall:
(i)
prepare, on the basis of guidelines acceptable to the Association and 
furnish to the Association not later than six (6) months after the 
Closing Date or such later date as may be agreed for this purpose 
between the Association and DVK, a plan for the future operation of 
the Project; and
(ii)
afford the Association a reasonable opportunity to exchange views with 
DVK on said plan.
Section 2.04. DVK shall duly perform all its obligations under the Subsidiary Loan 
Agreement.  Except as the Association shall otherwise agree, DVK shall not take or concur in 
any action which would have the effect of amending, abrogating, assigning or waiving the 
Subsidiary Loan Agreement or any provision thereof.
Section 2.05. (a) DVK and the Municipality of Dushanbe shall, at the request of the 
Association, exchange views with the Association with regard to the progress of the Project, the 
performance of its obligations under this Agreement and under the Subsidiary Agreement, and 
other matters relating to the purposes of the Credit.
(b) 
DVK and the Municipality of Dushanbe shall promptly inform the Association 
of any condition which interferes or threatens to interfere with the progress of the Project, the 
accomplishment of the purposes of the Credit, or the performance by DVK of its obligations 
under this Agreement and under the Subsidiary Loan Agreement.
Section 2.06. DVK and the Municipality of Dushanbe shall ensure that the Service 
Contract with the Operator, satisfactory to the Association, is maintained throughout Project 
implementation.
Section 2.07. The Municipality of Dushanbe shall take all measures necessary to ensure 
that DVK is able to meet its financial obligations as they fall due, including those under the 
Service Contract.
Section 2.08. After contributing an initial amount to the Project Account referred to in 
Section 6.01(c) of the Development Credit Agreement, DVK and the Municipality of Dushanbe 
shall contribute to the replenishment of said Project Account promptly every quarter with 
sufficient funds from their own resources to cover the projected counterpart financing 
requirements for local expenditures to be made under the Project in the succeeding three months.
ARTICLE III
Management and Operations of DVK
Section 3.01. DVK shall carry on its operations and conduct its affairs in accordance 
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with sound administrative, engineering, financial and environmental practices under the 
supervision of qualified and experienced management assisted by competent staff in adequate 
numbers.
Section 3.02. DVK shall at all times operate and maintain its plant, machinery, 
equipment and other property, and from time to time, promptly as needed, make all necessary 
repairs and renewals thereof, all in accordance with sound engineering, financial and technical 
practices.
Section 3.03. DVK shall take out and maintain with responsible insurers, or make other 
provision satisfactory to the Association for, insurance against such risks and in such amounts as 
shall be consistent with appropriate practice.
ARTICLE IV
Financial Covenants
Section 4.01. (a)  DVK shall maintain a financial management system, including records 
and accounts, and prepare financial statements, all in accordance with accounting standards 
acceptable to the Association, consistently applied, adequate to reflect its operations and 
financial condition and to register separately the operations, resources and expenditures related 
to the Project.
(b)
DVK shall:
(i)
have its records, accounts and financial statements (balance sheets, 
statements of income and expenses and related statements) for each 
fiscal year audited, in accordance with auditing standards acceptable to 
the Association, consistently applied, by independent auditors acceptable 
to the Association;
(ii)
furnish to the Association as soon as available, but in any case not later 
than six months after the end of each such year, (A) certified copies of 
the financial statements referred to in paragraph (a) of this Section, for 
such year as so audited, and (B) an opinion on such statements and 
report of such audit, by said auditors, of such scope and in such detail as 
the Association shall have reasonably requested; and
(iii)
furnish to the Association such other information concerning such 
records, accounts and financial statements, and the audit thereof, and 
concerning said auditors, as the Association may from time to time 
reasonably request.
Section 4.02. (a) Without limitation upon the DVK’s progress reporting obligations set 
out in paragraph 1 of Schedule 2 to this Agreement, DVK shall prepare and furnish to the 
Association a Financial Monitoring Report in form and substance satisfactory to the Association, 
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which:
(i)
sets forth sources and uses of funds for the Project, both cumulatively 
and for the period covered by said report, showing separately funds 
provided under the Credit, and explains variances between the actual and 
planned uses of such funds;
(ii)
describes physical progress in Project implementation, both 
cumulatively and for the period covered by said report, and explains 
variances between the actual and planned Project implementation; and
(iii)
sets forth the status of procurement under the Project, as at the end of the 
period covered by said report.
(b)
The first FMR shall be furnished to the Association not later than 45 days after 
the end of the second calendar quarter after the Effective Date, and shall cover the period from 
the incurrence of the first expenditure under the Project through the end of such second calendar 
quarter; thereafter, each FMR shall be furnished to the Association not later than 45 days after 
each subsequent calendar quarter, and shall cover such calendar quarter.
Section 4.03. (a) Except as the Association shall otherwise agree, DVK shall not incur 
any debt, unless a reasonable forecast of the revenues and expenditures of DVK, shows that its 
estimated net revenues for each fiscal year during the term of the debt to be incurred shall be at 
least 1.2 times its estimated debt service requirements in such year on all of its debt including the 
debt to be incurred.
(b)
For the purposes of this Section:
(i)
The term “debt” means any indebtedness maturing by its terms more 
than one year after the date on which it is originally incurred.
(ii)
Debt shall be deemed to be incurred: (A) under a loan contract or 
agreement or other instrument providing for such debt or for the 
modification of its terms of payment on the date of such contract, 
agreement or instrument; and (B) under a guarantee agreement, on the 
date the agreement providing for such guarantee has been entered into.
(iii)
The term “net revenues” means the difference between:
(A)
the sum of collected revenues from all sources related to 
operations and net non-operating income; and
(B)
the sum of all expenses related to operations including 
administration, adequate maintenance, taxes and payments in 
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lieu of taxes, but excluding provision for depreciation, other 
non-cash operating charges and interest and other charges on 
debt.
(iv)
The term “net non-operating income” means the difference between:
(A)
collected revenues from all sources other than those related to 
operations; and
(B)
expenses, including taxes and payments in lieu of taxes, incurred 
in the generation of revenues in (A) above.
(v)
The term “debt service requirements” means the aggregate amount of 
repayments (including sinking fund payment if any) of, and interest and 
other charges on, debt.
(vi)
The term “reasonable forecast” means a forecast prepared by DVK not 
earlier than twelve months prior to the incurrence of the debt in question, 
which both the Association and DVK accept as reasonable and as to 
which the Association has notified DVK of its acceptability, provided 
that no event has occurred since such notification which has, or may 
reasonably be expected in the future to have, a material adverse effect on 
the financial condition or future operating results of DVK.
(vii)
Whenever for the purposes of this Section it shall be necessary to value, 
in 
terms of the currency of the Borrower, debt payable in another currency, 
such 
valuation shall be made on the basis of the prevailing lawful rate of 
exchange 
at which such other currency is, at the time of such valuation, 
obtainable for 
the purposes of servicing such debt, or, in the absence of such 
rate, on the 
basis of a rate of exchange acceptable to the Association.
Section 4.04. The Municipality of Dushanbe shall review, in accordance with established 
procedures, the periodic proposals for tariff adjustments submitted by DVK at least quarterly 
and, thereafter, shall promptly take action to adjust said tariffs so that DVK can meet its 
obligations by collecting sufficient revenues to cover operation and maintenance costs and other 
expenses.
Section 4.05. The Municipality of Dushanbe, after review of the forecast amount of 
water consumption prepared by DVK every six months shall: (a) allocate in the relevant 
operating budget of budget organizations adequate funds for payment of water fees; and (b) 
ensure that said funds are paid to DVK.
Section 4.06. The Municipality of Dushanbe shall: (a) enable DVK to collect water fees 
from its customers, including but not limited to disconnection of non-paying customers; and (b) 
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assist the Operator in the implementation of said collection of water fees.
Section 4.07. The Municipality of Dushanbe shall take all measures necessary to ensure 
appropriate yearly budgetary allocations to the municipal budget required for Project 
implementation.
Section 4.08. By December 31, 2002, the Municipality of Dushanbe shall define and 
initiate implementation of adequate measures to enable accounts payable and receivable of DVK 
to be reduced to a level that will allow DVK to conduct properly its financial and commercial 
activities and to prevent blocking of its bank accounts.
ARTICLE V
Effective Date; Termination;
Cancellation and Suspension
Section 5.01. This Agreement shall come into force and effect on the date upon which 
the Development Credit Agreement becomes effective.
Section 5.02. (a) This Agreement and all obligations of the Association and of DVK 
thereunder shall terminate on the earlier of the following two dates:
(i)
the date on which the Development Credit Agreement shall terminate in 
accordance with its terms; or
(ii)
the date twenty years after the date of this Agreement.
(b)
If the Development Credit Agreement terminates in accordance with its terms 
before the date specified in paragraph (a) (ii) of this Section, the Association shall promptly 
notify DVK and the Municipality of Dushanbe of this event.
Section 5.03. All the provisions of this Agreement shall continue in full force and effect 
notwithstanding any cancellation or suspension under the General Conditions.
ARTICLE VI
Miscellaneous Provisions
Section 6.01. Any notice or request required or permitted to be given or made under this 
Agreement and any agreement between the parties contemplated by this Agreement shall be in 
writing.  Such notice or request shall be deemed to have been duly given or made when it shall be 
delivered by hand or by mail, telex or facsimile to the party to which it is required or permitted to 
be given or made at such party’s address hereinafter specified or at such other address as such 
party shall have designated by notice to the party giving such notice or making such request.  
Deliveries made by facsimile transmission shall also be confirmed by mail.  telegram, cable, 
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telex or radiogram to the party to which it is required or permitted to be given or made at such 
party’s address hereinafter specified or at such other address as such party shall have designated 
by notice to the party giving such notice or making such request.  The addresses so specified are:
For the Association:
International Development Association
1818 H Street, N.W.
Washington, D.C. 20433
United States of America
Cable address: 
Telex:
Facsimile:
INDEVAS
248423 (MCI) or
(202) 477-6391
Washington, D.C.
 64145 (MCI)
For DVK
14A Ayni Street,
734042 Dushanbe, Tajikistan
Facsimile:
(992372) 217745
For the Municipality of Dushanbe
48 Rudaki Ave.,
Dushanbe, Tajikistan
Facsimile:
(992372) 219438
Section 6.02. Any action required or permitted to be taken, and any document required or 
permitted to be executed, under this Agreement on behalf of: (a) DVK may be taken or executed 
by the Director of DVK or such other person or persons as its Director shall designate in writing; 
and (b) the Municipality of Dushanbe may be taken or executed by its Mayor or such other 
person or persons as the Mayor shall designate in writing, and DVK and the Municipality of 
Dushanbe shall furnish to the Association sufficient evidence of the authority and the 
authenticated specimen signature of each such person.
Section 6.03. This Agreement may be executed in several counterparts, each of which 
shall be an original, and all collectively but one instrument.
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IN WITNESS WHEREOF, the parties hereto, acting through their duly authorized 
representatives, have caused this Agreement to be signed in their respective names in Almaty, 
Republic of Kazakhstan, as of the day and year first above written.
INTERNATIONAL DEVELOPMENT ASSOCIATION
By: 
/s/ Dennis de Tray 
Authorized Representative
DUSHANBE VODOKANAL STATE UNITARY ENTERPRISE
By: 
        /s/ Saidrahmon Khidirov 
Authorized Representative
MUNICIPALITY OF DUSHANBE
By: 
/s/ Behruz Safarov 
Authorized Representative
SCHEDULE 1
Procurement and Consultant’s Services and Consultants' Services
Section I
. Procurement of Goods and Works
Part A
: General
Goods and works shall be procured in accordance with: (a) the provisions of Section I of 
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the “Guidelines for Procurement under IBRD Loans and IDA Credits” published by the Bank in 
January 1995 and revised in January and August 1996, September 1997 and January 1999 (the 
Guidelines); and (b) the provisions of the following Parts of this Section I.
Part B
: International Competitive Bidding
1.
Except as otherwise provided in Part C of this Section, goods, works and Management 
Services shall be procured under contracts awarded in accordance with the provisions of Section 
II of the Guidelines and paragraph 5 of Appendix 1 thereto.
2.
The following provisions shall apply to goods, works and Management Services to be 
procured under contracts awarded in accordance with the provisions of paragraph 1 of this Part 
B.
(a)
Prequalification
Bidders for the Service Contract shall be prequalified in accordance with the provisions 
of paragraphs 2.9 and 2.10 of the Guidelines.
(b)
Preference for domestically manufactured goods and domestic contractors
The provisions of paragraphs 2.54 and 2.55 of the Guidelines and Appendix 2 thereto 
shall apply to goods manufactured in the territory of the Borrower and works to be carried out by 
domestic contractors.
(c)
Notification and Advertising
The invitation to prequalify or bid for each contract shall be advertised in accordance 
with the procedures applicable to large contracts under paragraph 2.8 of the Guidelines.
Part C
: Other Procurement Procedures
1.
National Competitive Bidding
Works estimated to cost less than $100,000 equivalent per contract, may be procured 
under contracts awarded in accordance with the provisions of paragraphs 3.3 and 3.4 of the 
Guidelines.
2.
International Shopping
Goods estimated to cost less than $50,000 equivalent per contract, may be procured 
under contracts awarded on the basis of international shopping procedures in accordance with the 
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provisions of paragraphs 3.5 and 3.6 of the Guidelines.
3.
National Shopping
Goods estimated to cost less than $10,000 equivalent per contract, may be procured 
under contracts awarded on the basis of national shopping procedures in accordance with the 
provisions of paragraphs 3.5 and 3.6 of the Guidelines.
4.
Procurement of Small Works
Works for urgent repairs associated with operational emergencies, estimated to cost less 
than $10,000 equivalent per contract, may be procured under lump-sum, fixed-price contracts 
awarded on the basis of quotations obtained from three (3) qualified domestic contractors in 
response to a written invitation.  The invitation shall include a detailed description of the works, 
including basic specifications, the required completion date, a basic form of agreement 
acceptable to the Association, and relevant drawings, where applicable.  The award shall be 
made to the contractor who offers the lowest price quotation for the required work, and who has 
the experience and resources to complete the contract successfully.
Part D
: Review by the Association of Procurement Decisions
1.
Procurement Planning
Prior to the issuance of any invitations to prequalify for bidding or to bid for contracts, 
the proposed procurement plan for the Project shall be furnished to the Association for its review 
and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Guidelines.  
Procurement of all goods and works shall be undertaken in accordance with such procurement 
plan as shall have been approved by the Association, and with the provisions of said paragraph 1.
2.
Prior Review
(a)
With respect to each contract under Part B.1 of this Section, and with respect to 
the first two contracts under Part C.1 of this Section, the procedures set forth in paragraphs 2 and 
3 of Appendix 1 to the Guidelines shall apply.
(b)
With respect to: (i) the first two contracts under Parts C.2 and C.3; and (ii) the 
first three contracts under Part C.4 of this Section, the following procedures shall apply:
(i)
prior to execution of any contract under shopping procedures, the 
Borrower shall provide to the Association a report on the comparison 
and evaluation of quotations received;
(ii)
prior to the execution of any contract procured under shopping 
procedures, the Borrower shall provide to the Association a copy of the 
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specifications and the draft contract; and
(iii)
the procedures set forth in paragraphs 2(f), 2(g) and 3 of Appendix 1 to 
the Guidelines shall apply.
3.
Post Review
With respect to each contract not governed by paragraph 2 of this Part, the procedures set 
forth in paragraph 4 of Appendix 1 to the Guidelines shall apply.
Section II
. Employment of Consultants
Part A
: General
Consultants’ services shall be procured in accordance with (a) the provisions of the 
Introduction and Section IV of the “Guidelines:  Selection and Employment of Consultants by 
World Bank Borrowers” published by the Association in January 1997 and revised in September 
1997 and January 1999, subject to the modifications thereto set forth in paragraph 2 of this Part 
A (the Consultant Guidelines), and (b) the provisions of the following Parts of this Section II.
Part B
: Quality- and Cost-based Selection
Except as otherwise provided in Part C of this Section, Consultants’ services shall be 
procured under contracts awarded in accordance with the provisions of Section II of the 
Consultant Guidelines, paragraph 3 of Appendix 1 thereto, Appendix 2 thereto, and the 
provisions of paragraphs 3.13 through 3.18 thereof applicable to quality- and cost-based selection 
of consultants.
Part C
: Other Procedures for the Selection of Consultants
1.
Least-cost Selection
Services for financial audits and engineering designs estimated to cost less than 
$100,000 equivalent per contract may be procured under contracts awarded in accordance with 
the provisions of paragraphs 3.1 and 3.6 of the Consultant Guidelines.
2.
Selection Based on Consultants’ Qualifications
Services for surveys and studies related to public awareness and community relations 
estimated to cost less than $100,000 equivalent per contract may be procured under contracts 
awarded in accordance with the provisions of paragraphs 3.1 and 3.7 of the Consultant 
Guidelines.
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3.
Individual Consultants
Services for tasks that meet the requirements set forth in paragraph 5.1 of the Consultant 
Guidelines for short term advisory services and legal services, shall be procured under contracts 
awarded to individual consultants in accordance with the provisions of paragraphs 5.1 through 
5.3 of the Consultant Guidelines.
Part D
: Review by the Association of the Selection of Consultants
1.
Selection Planning
Prior to the issuance to consultants of any requests for proposals, the proposed plan for 
the selection of consultants under the Project shall be furnished to the Association for its review 
and approval, in accordance with the provisions of paragraph 1 of Appendix 1 to the Consultant 
Guidelines.  Selection of all consultants’ services shall be undertaken in accordance with such 
selection plan as shall have been approved by the Association, and with the provisions of said 
paragraph 1.
2.
Prior Review
(a)
With respect to each contract for the employment of consulting firms estimated 
to cost the equivalent of $100,000 or more, the procedures set forth in paragraphs 1, 2 (other than 
the third subparagraph of paragraph 2(a)) and 5 of Appendix 1 to the Consultant Guidelines shall 
apply.
(b)
With respect to each contract for the employment of individual consultants 
estimated to cost the equivalent of $50,000 or more, the qualifications, experience, terms of 
reference and terms of employment of the consultants shall be furnished to the Association for its 
prior review and approval.  The contract shall be awarded only after the said approval shall have 
been given.
(c)
With respect to each contract for employment of consulting firms or individual 
consultants, irrespective of the value of the contract, the terms of reference shall be furnished to 
the Association for its prior review and approval.  The contract shall be awarded only after the 
said approval shall have been given.
3.
Post Review
With respect to each contract not governed by paragraph 2 of this Part, the procedures set 
forth in paragraph 4 of Appendix 1 to the Consultant Guidelines shall apply.
SCHEDULE 2
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Implementation Program
1.
DVK shall:
(a)
maintain policies and procedures adequate to enable it to monitor and evaluate 
on an ongoing basis, in accordance with indicators satisfactory to the Association, the carrying 
out of the Project and the achievement of the objectives thereof;
(b)
prepare, under terms of reference satisfactory to the Association, and furnish to 
the Association, on or about December 31, 2003, a report integrating the results of the 
monitoring and evaluation activities performed pursuant to paragraph (a) of this Section, on the 
progress achieved in the carrying out of the Project during the period preceding the date of said 
report and setting out the measures recommended to ensure the efficient carrying out of the 
Project and the achievement of the objectives thereof during the period following such date; and
(c)
review with the Association, by March 31, 2004, or such later date as the 
Association shall request, the report referred to in paragraph (b) of this Section, and, thereafter, 
take all measures required to ensure the efficient completion of the Project and the achievement 
of the objectives thereof, based on the conclusions and recommendations of the said report and 
the Association’s views on the matter.
2.
DVK shall take or cause to be taken, all measures necessary for the carrying out of the 
EMMP in a timely manner.
3.
The Municipality of Dushanbe shall maintain the PCU until completion of the Project, 
with staff, resources and terms of reference satisfactory to the Association, and assign to it 
responsibility for overall Project coordination, including:
(a)
preparation of disbursement applications under the Credit;
(b)
management of the Special Accounts referred to in Schedule 4 to the 
Development Credit Agreement;
(c)
maintenance of records and accounts related to the Project and arranging for the 
audit thereof;
(d)
participation in administration of bidding procedures and of contracts under the 
Project; and
(e)
preparation of quarterly progress reports and submission thereof to the Borrower 
and the Association not later than 30 days after the end of each quarter, the first such report to be 
furnished to the Association not later than December 31, 2002.
4.
DVK shall take all measures necessary to enable the PCU to carry out its responsibilities 
relating to the implementation of the Project, including the administration of the Special 
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Account, the Project accounting, financial management, Project reporting, auditing arrangements 
and procurement.
5.
DVK and the Municipality of Dushanbe shall: (a) review with the Association, not later 
than December 31, 2004, proposals for continued management of the water services of the 
Municipality of Dushanbe upon completion of the Service Contract, with due consideration to 
various options for public and private sector management; and (b) based on the conclusions and 
recommendations of said review take appropriate measures regarding the management of the 
water services upon completion of the Service Contract.
6.
DVK and the Municipality of Dushanbe in conjunction with the Borrower shall: (a) 
ensure that technical and financial audits of the Operator’s performance will be carried out 
annually, the first such audit to be completed by September 30, 2003, or such later date as may 
be agreed upon with the Association, by independent auditors acceptable to the Association, 
under terms of reference acceptable to the Association; and (b) thereafter, submit the results of 
said audits to the Association for its review.